An efficient cash flow management proves even more indispensable for businesses in the face of this challenging outlook
By Jefferson Gonçalves, Domingues e Pinho Contadores
In the current scenario, affected by the pandemic crisis and, consequently, full of challenges for companies, the cash flow management becomes even more relevant as an instrument of planning and control.
In recent months, businesses have faced the need to rethink how to reduce costs, how to deal with nonpayment and declining revenues in an emergency manner. However, the management of cash flow requires method and a long-term view.
The moment tests the planning and the capacity of companies of the most varied sizes and segments on responding to crisis, leaving a hard lesson that organization, planning, attention to cash flow and risk management are essential for survival.
The cash flow is a basic financial planning and control instrument used to determine and project the available balance. A view of the health of the business is formed by recording receipts, payments, and projections of inflows and outflows.
These items should be monitored to understand the origin and destination of the funds, indicating which expenses can be eliminated or whether there is a balance to be used for investments. The control allows the identification of all obligations and shows which terms should be prioritized to avoid possible penalties and interest.
The cash flow management assists the company in assessing cash and working capital availability and portrays its liquidity level. This information shows paths and possibilities for the entrepreneur, identifying expenses and inventory items that can be reduced, the need to negotiate deadlines with suppliers, planning requests for loans or investments, among other actions to avoid financial losses.
A realistic assessment of the available working capital and the liquidity level of the company is important to support the decision making process, seeking to comprehend the demands and needs, so that it is clear that actions have a greater urgency, importance and effect.
Predictability of cash flow in uncertainty days
In this uncertain scenario, worsened by the public health emergency, improving cash flow management by developing processes and methods that solve immediate issues and also provide a longer-term overview becomes even more urgent.
A challenge is to establish indicators related to future cash flow forecasting that are able to show the ability to meet the obligations ahead.
In practice, more than ever, companies are dealing with the certainty of cash outflows and a considerable difficulty in forecasting new entries.
However, it is necessary to concentrate this study as predictability identifies critical points and supports the decision-making process, making possible the proactive management of possible gaps. A well-structured process in this context is decisive to guide the actions.
Jefferson Gonçalves da Domingues e Pinho Contadores, Corporate Member of NBCC.
Analysis of revenues and costs
The balance of cash flow is based on an overall assessment of costs. Time to devote even more attention to controlling mechanisms. According to all indicators, with the lessons brought by the pandemic, this should, once and for all, become part of the “modus operandi” of every business.
Efforts to reduce costs must be considered as they are not always able to bring immediate results. It is common for the company to identify some expense that cannot be cut immediately. Every reduction needs to be planned and its consequences well evaluated.
Check here some points that can be reconsidered:
- Negotiation of deadlines with suppliers and lessors;
- Negotiation of interest and penalties with financial institutions;
- Review of contracts, considering the possibility of returns and cancellations;
- Replacement of suppliers;
- Use of government measures of a labor nature and suspension or postponement of the deadline for payment of taxes;
- Use of technological resources that automate functions and optimize productivity;
- Adoption of partial or full home-based work ( depending on the company activity).
Many companies with their offices still closed as social isolation measures have managed to reduce some costs with the physical structure of their facilities.
Maintaining the teams working from home, possible for some businesses, has been studied as an alternative to reduce costs with space and equipment rentals, expenses with electricity, internet, water, cleaning, and supplies.
This alternative, even before considered by many companies, has proven to be viable for some cases and sectors, contributing now to the balance of cash flow.
It is worth remembering that, as a two-way street, just as your company will ask for more time to pay a certain expense, your client can also request installments, discounts and term extensions. This decrease in revenue must also go into planning.
Similarly, dealing with contract cancellations may be necessary when your company is the supplier of a product or service.
Another point is to consider that any discounts obtained during the pandemic period can return to the original value when the situation is normalized.
Moreover, it is crucial to create ways to periodically evaluate the variables and changes in the situation, external effects and the results of actions already established.
Beyond cash flow
An efficient cash flow management is not restricted to recording inflows and outflows. It is essential to coordinate this information with micro and macro analysis, combining this survey with solutions such as in the following list:
- Management of accounts payable and receivable;
- Account reconciliation;
- Investment management;
- Closing foreign exchange operations;
- Budget management;
- Bank account management.
For a good financial planning, one should be supplied with reports that indicate reliable figures. Only with finances under control, the company will have the internal environment favorable to schedule short, medium and long-term actions with higher certainty and assertiveness.
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